What a Second Marriage Does to Your Money

If love is blind, then remarried Americans ought to take a second look at their finances.

Though most of us would like to believe that we’ll only walk down the aisle once, nearly half of the 2 million or so couples who wed each year will ultimately file for divorce, and according to census researcher Rose M. Kreider, they’ll be tying the knot again within three to three and a half years.

In her white paper published last April titled “Embracing the Institution of Marriage: The Characteristics of Remarried Americans,” census researcher Diana B. Elliott cited data from the 2008 American Community Survey to take a snapshot of remarried Americans. In this report, Elliott found that in the South there seems to be “a marriage movement” that has recently developed at the state level. The movement has led to pro-marriage policies like having couples undergo marital counseling before getting a divorce and making divorce itself much more difficult to obtain.

The average remarried American is a female (women comprised 53.3% of all people surveyed for the ACS who were married twice), and a baby boomer. The data show that 24.4% of adults ages 55-64 have been remarried, while only 18.7% of those in the 35-44 age group have married twice. Only 6.1% of Gen Y-ers – ages 25-34 – had taken two trips down the aisle.

Age plays a significant role in remarriage statistics, wrote Elliott, “because younger individuals now spend more time in early adulthood pursuing education and careers,” while older generations, particularly pre-boomers aged 65 and up, are rooted in traditional “norms and expectations” that frown upon cohabitation or single-parent households. So why are so many people taking two (or more) trips down the aisle?

Dr. Andrew Cherlin, a sociology professor at Johns Hopkins University whose provocative book, The Marriage Go-Round, explores the “de-institutionalization of marriage,” attributes this gradual rise of remarriage during the past century to our country’s evolving social norms.

“Fifty years ago, people didn’t think of marriages the same way,” he tells MainStreet. “Happiness was more likely to mean being a good father or a good brother or a good spouse. Today, happiness is more bound up with your own personal sense of meaning. All that has meant we have more breakups than we had 50 years ago, but a majority of all people will start a new relationship because they value being in a long-term partnership.”

MONEY TALKS

Remarriage may bring great joy to heartbroken Americans, but it can undoubtedly put a damper on their finances.

Adryenn Ashley, a certified divorce financial analyst and the divorced author of Every Single Girl’s Guide to Her Future Husband’s Last Divorce, agrees. “It’s easier to have a conversation about your sex life than ask what their credit score is,” she says. “You need to make sure that who you’re with has a similar belief system about money that you have,” and just as you would enter into a business partnership knowing each other’s goals for the company’s growth, “when you’re serious about making a life with someone, that gives you the right to ask those hard questions."

MainStreet tapped financial experts and people currently in their second marriages to learn how remarriage can impact your bank account, from filing those dreaded tax returns to losing alimony, to dealing with child support and drafting a prenuptial agreement.

Here’s what they had to say.

TAXES

With love comes marriage and with marriage comes taxes. The ins and outs of filing your taxes can be significantly affected by your marital status, especially if you remarry.

Typically, a remarried couple files a joint tax return because it provides the best savings scenario, says Neil Johnson, a tax expert based in Chicago. When divorced couples are still filing together as a married couple, however, things get a little bit trickier.

“There’s usually a provision in the divorce settlement that one of the spouses will pay the couple’s taxes,” Johnson says. “But what happens in most cases is that the spouse who says they’re going to pay does not pay the tax. So the other spouse will get letters from the IRS because the IRS goes after both parties when you file a joint return.”

This tax-induced drama can also weasel its way into the new relationship if the remarried couple is filing together and the divorced spouse owes any outstanding taxes from his or her prior marriage. “What I’ve seen happen is the one spouse thinks, ‘Oh the IRS isn’t going to go after me’,” Johnson says. “But you wind up getting married and you file your joint tax return, and you’re not getting this refund because the IRS took it.” What you will get, however, is a letter from the IRS, stating “We’ve taken your refund and applied it to this tax return from whatever tax year it was,” says Johnson.

One of Johnson’s clients, who had been estranged from his wife for six or eight years, wrongly assumed she was filing their tax returns as a joint married couple during that period. “We went and filed all these tax returns as married filing separate—really the worst possible status,” Johnson explains, “so he wound up owing a whole bunch of money to the IRS and he wasn’t in a position to pay off the balance. Now, he gets divorced and then remarried, and still has this balance owed to the IRS. He tried to work out an installment agreement and they wanted him to submit some personal financial statements. But now that he was remarried, even though he filed individually, the IRS took the position that the new wife works and his living expenses should have been less than what was stated. And of course, he should be able to pay more on the installment.”

The lesson here is to know what your new spouse owes. “Once you co-mingle, extracting your stuff is very difficult,” adds Ashley.

Paula Bisacre, publisher of ReMarriage magazine and a 44-year-old mother of two, fell in love with and remarried a widower who had had three children of his own. But as she struggled to create a new life with her blended family, she also had to deal with the frustration of her ex-husband claiming her children as a deduction on his tax returns every other year. “One area that became kind of an issue as a single divorced woman was who would claim what kids when,” Bisacre says. “[My ex] would claim a child one year, and we would alternate, but it gets complicated. When one child turns 18, then what do you do with the next kid?”

To add to the stress, Bisacre, who lives in Maryland, had to deal with changing divorce laws. “Since my divorce decree came about in ‘99, the tax law changed,” Bisacre says. “So now whoever has the primary residence with the kids claims all kids on the taxes.”

To avoid the same trouble, be sure to keep up with the law, says Bisacre. And don’t be afraid to seek professional help, either, as the tax laws change over time. “When I had to be the one to tell my ex that he no longer had a deduction, that caused some friction,” Bisacre says.

ALIMONY

Among the dodgy misconceptions one can have before getting remarried, Ashley says far too many women make the mistake of assuming “a man will be a plan.”

“You can’t just rush into things,” she warns. If alimony happens to be in the picture and it helps you maintain your current lifestyle, then it’s imperative that you take a careful look at your finances before making the big leap.

“It depends on your agreement, but typically upon remarriage or upon death, the alimony ceases,” says Gabrielle Clemens, a wealth adviser and vice president of investments for UBS, a global finances company. Conversely, alimony “does not go away on the remarriage of the paying spouse.”

Of course, whether you’re legally entitled to alimony or whether it ceases upon remarriage depends on the state you reside in. “Every state has its own laws, trends, and its own case law that’s been interpreted,” Clemens says. “There’s no federal law for family law, either. … Alimony doesn’t have to be lifetime, some states award it, other agreements say it’s for a set period of time; it just depends on what you and your lawyers negotiate. In the end, it’s based on the ability to pay and the lifestyle analysis of the needs of the person receiving it. Some people keep paying alimony upon remarriage because if they don’t, the spouse will come back and ask for child support. Alimony is tax deductible; child support is not.”

Before you remarry, check your divorce agreement to see exactly what it says and then talk to a certified divorce financial planner. “[They] are specially trained in the nuances of the divorce process and the issues associated with divorce, including alimony and child support,” Clemens says. CHILD SUPPORT

Unless you file for what’s known to divorce attorneys as a material change of circumstance, then your child support will not change upon remarriage, says Laurie Giles, a divorce lawyer based in Connecticut.

Keep in mind, however, that many states are modifying their child support calculators, which determine the payments that an ex-spouse owes the custodial parent each month. Sometimes, says Clemens, “if you’re paying child support and you get remarried, your new spouse’s income can be taken into consideration in determining child support.” But this can only happen if the ex-spouse raises the issue, and of course the stress of going to court and attorney’s fees should be taken into account before this happens.

PRENUPS & POSTNUPS

Though controversial, prenuptial agreements – or prenups – govern what happens to assets when and if a marriage ends in divorce or death, and can be a useful tool for remarried couples looking to protect their personal assets. A postnuptial agreement is drafted during the marriage and, like prenups, govern the assets acquired during the union, such as a house. “We call them the ‘What if we divorce?’ instrument,” jokes Gnita Wall, a certified financial planner who works with the Women’s Institute for Financial Education.

All kidding aside, though, Wall says we need to remember that all marriages do end, whether by death, or divorce. With this in mind, remarried Americans should think very hard about what it is they want their future estate to look like, and how their children or other loved ones will be left behind, among other issues. “You need to ask the big questions,” says Wall. “You need to be asking, ‘If our marriage ends in death, am I going to be okay?’ ‘If you’re leaving everything to your kids, am I going to be out in the street?’ ‘We’re building a new house with your money — do I have an ownership in that?’ These are the questions that need to be discussed” and brought in the open with your new spouse.

“I had a friend who married for the first time late in life, to a man who was divorced with older teen children,” Wall says. “This couple was married only for about a year and he died suddenly. The children had written his will so everything he had went to his kids, and his kids kicked her out.”

Remarried couples might not think the Free Application for Federal Student Aid, or FAFSA, has much to do with them unless their children are applying for college, but remarried couples can have issues with the FAFSA, since it asks for a stepparent’s income and takes it into consideration when calculating aid.

“It’s really ironic because stepparents don’t really have any rights unless they adopt the children,” Bisacre says. “But putting them on the form can really hurt the child’s chances for getting college aid. Even if I had a prenup with my second husband and he said, listen, I’m paying for my kids’ college and you pay for yours, on the FAFSA, I have to put my husband’s income, which impacts the child’s qualification.”

The rationale, says Bisacre, “is that stepparents are contributing to the household, the mortgage, electricity, part of the whole, complete financial picture.” But in cases where “the stepdad’s salary is on the form but he’s not really contributing, it actually hurts the kids. It’s a system that needs to be taken a close look at, especially as the number of remarriages grows.”

CREDIT CRUNCH

It isn’t just the FAFSA that gets a bad rap among remarried couples. According to Wall, “credit card debt can go after household income in any nine of the community property states,” such as Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington and Wisconsin. That’s because “any income that’s earned by one of the spouses is considered to belong half to the other spouse, and any assets acquired during the marriage are presumed to belong 50-50 to the spouses.”

Of course, a prenup or postnup could negate community ownership, so if you haven’t drafted one yet, then it might be time to start.